After nearly 10 months of working remotely, Center for Planning Excellence President and CEO Camille Manning Broome decided her team no longer needed all 2,200 square feet of office space in downtown’s Shaw Center for the Arts, which the nonprofit has leased there for nearly a decade.
So, when it came time to prepare the budget for 2021, CPEX renegotiated its lease and gave up more than 60% of its space, including two conference rooms.
“No one had used the space since March and we’re working so well remotely it made sense to downsize,” says Manning Broome. “Besides, everyone has an office at their home now and we have a lot of our team meetings outside at City Park.”
CPEX is not alone. With the pandemic now promising to drag on indefinitely into 2021 and office tenants planning for the year ahead, commercial brokers say they’re starting to see pandemic-related impacts on the office market that have been predicted for months.
“We’re seeing two things unfold,” says Jonathan Walker, a commercial broker with Maestri-Murrell. “We don’t know how many people working from home are going to continue working from home in 2021, and people that have office space are having a hard time projecting what their workload is going to look like for the next five years, which is making it hard to project how much office space they’ll need.”
The result, Walker says, is that tenants are either staying put or downsizing, and landlords are bending over backward to accommodate them.
Says Walker: “It’s a tenant’s market.”
Granted, most tenants—unlike CPEX—are locked into long-term leases, so they cannot just downsize on a whim. Those who are not, however, or whose leases are coming up for renewal are rethinking their office space needs.
“From what we’re seeing, tenants are definitely reevaluating the amount of space they’re going to need in the future,” says NAI Latter and Blum’s Jonann Stutzmann. “Tenants, who maybe had 3,000 to 5,000 square feet are now looking for 1,000 to 3,000 square feet.”
The long-term ripple effects of such downsizing cannot be good for the office market, though lease rates do not appear to have been negatively impacted so far.
“Office lease rates in Baton Rouge have been stable for years,” Stutzmann says. “I don’t see that changing, at least not yet. It’s more just the need for space.”
But if enough inventory floods the market, prices will eventually have to come down. With no additional COVID assistance packages coming from Congress any time soon and the virus continuing to spread at a rapid rate, it’s likely more office tenants—not fewer—will be giving up space in the months to come.
“We gave up 15 percent of our space in September,” says CPA Gus Levy, who’s downtown offices are in the 400 block of Fourth Street. “We told the landlord we either were going to downsize or look for a much less expensive space.”